Data/Event Risks
- EUR: The ZEW has the potential to move the single currency should it fall drastically above or below expectations. Key to watch is support on EURUSD which comes in at 1.3302 (trendline) and 1.3306 (50 day moving average).
- USD: Back to normal after the Presidents day holiday yesterday. The currency will pay some attention to the NAHB survey on the housing market, which stalled last month after a strong recovery over the previous year.
Idea of the Day
We’ve moved on from the “risk-on/risk-off” dynamics of last year. Taking a broad range of currencies and comparing their correlations to data surprises shows that this is at the highest for a year (6-month rolling correlation) and rising. Furthermore, the dispersion of cross-currency and cross-asset correlations has been rising. The bottom line is that currencies are becoming more sensitive to data and less bothered about further measures from central banks, which anyway are becoming less effective on the economy and having a lower impact on financial markets.
Latest FX News
- EUR: The currency was again overly sensitive to comments from the European Central Bank Draghi yesterday, initially moving lower but then recovering most of the losses. Note that key support comes in the 1.3302/06 area.
- AUD: The minutes of the latest RBA meeting reiterated the fact that the central bank retains a bias towards easing rates, with previous cuts starting to have an impact on the more interest rate sensitive parts of the economy. The Aussie was marginally firmer during the Asia session, moving above the 1.0330 area.
- JPY: The yen firmer overnight, with mixed messages coming from officials on the possibility of the BoJ purchasing foreign bonds. Yesterday the prime minister appeared open to the possibility; today the finance minister was pouring cold water on the issue. USDJPY holding below the recent highs made just below 94.50.
Further reading: G20 was a brief pause in the currency wars
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